Good evening. Friday provided no resolution to the sideways channel we have been trading in for the past week. My biggest concern with a breakout higher right now is that it will turn into a head fake because buyers are getting exhausted. The market is in dire need of a healthy correction and I remain in the camp that dips will be bought. If there is breakout to the upside this week prior to a pullback I think it is a good idea to consider closing long positions. The model portfolio has positions to take advantage of a correction and I have provided another short trade tonight that should work great with broader market weakness. We won't open positions until support is broken. In the end, the smart thing to do is to tread lightly and use small position size until we have a better handle on the broader market direction. Please email me with any questions/comments. Enjoy the rest of your weekend.
NEW DIRECTIONAL PUT PLAYS
Archer Daniels Midland - ADM - close 32.38 change -0.83 stop 33.76
Archer Daniels Midland Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company is a processor of oilseeds, corn, wheat, cocoa, and other agricultural commodities and is a manufacturer of vegetable oil and protein meal, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients. The Company also has a grain elevator and transportation network to procure, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, as well as processed agricultural commodities.
Target(s): 31.25, 30.85, 30.20
Key Support/Resistance Areas: 33.50, 31.00, 29.80
Time Frame: 1 to 2 weeks
Why We Like It:
Cautious comments from analysts about rising agricultural commodity prices is likely to affect ADM's business. The stock is overbought and is due for correction after an incredible run higher off of the July lows. ADM has also formed a bearish dark cloud cover technical pattern that suggests the decline is imminent. I suggest we open positions at current levels and play for a $1 to $2 move lower. The primary targets are $31.25 and $30.85 and if reached they should produce a +40% to +60% winner. Our stop is above the 52-week high set on Friday.
Suggested Position: Buy October $32.00 PUT, current ask $0.90
Entry on September xx
Earnings: 11/2/2010 (unconfirmed)
Average Daily Volume: 6 million
Listed on September 18, 2010